DCF Studio

    VZ · NYQ · Communication Services

    Verizon Communications Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 86.36

    Market price

    USD 48.09

    Implied upside

    +79.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 86.36+79.6%
    Exit multiple
    USD 48.97+1.8%
    Market price
    USD 48.09

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn10bn19bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 138.6bnUSD 139.1bnUSD 139.6bnUSD 140.0bnUSD 140.5bn+0.3%
    EBITUSD 29.9bnUSD 30.0bnUSD 30.1bnUSD 30.2bnUSD 30.3bn+0.3%
    NOPATUSD 23.6bnUSD 23.7bnUSD 23.7bnUSD 23.8bnUSD 23.9bn+0.3%
    Add depreciation & amortisationUSD 18.1bnUSD 18.2bnUSD 18.2bnUSD 18.3bnUSD 18.3bn+0.3%
    Less capital expenditureUSD -22.1bnUSD -22.2bnUSD -22.3bnUSD -22.4bnUSD -22.4bn+0.3%
    Less increase in working capitalUSD -310.2mUSD -311.2mUSD -312.2mUSD -313.3mUSD -314.3m+0.3%
    Free cashflow to firmUSD 19.2bnUSD 19.3bnUSD 19.4bnUSD 19.4bnUSD 19.5bn+0.3%
    Discount factor0.97170.91740.86620.81790.7722-
    Present valueUSD 18.7bnUSD 17.7bnUSD 16.8bnUSD 15.9bnUSD 15.1bn-5.3%
    Present Value Of The ForecastUSD 84.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.491Reported 0.240, pulled toward 1.0 (Blume)
    Cost of equity7.70%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 199.8bn52.4% of capital
    Total debtUSD 181.6bn47.6% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC5.91%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 86.36

    84% of EV

    Forecast FCFF, final year
    USD 19.5bn
    Capex at depreciation, working capital in reinvestment
    USD 26.1bn
    Less reinvestment at g/ROIC (26.8% of NOPAT)
    USD -7.0bn
    Capitalised
    USD 19.1bn
    ROIC (reported)
    9.3%
    Terminal value, undiscounted
    USD 574.8bn
    Terminal value, discounted
    USD 443.9bn
    Enterprise value
    USD 528.0bn
    Less net debt
    USD 162.6bn
    Equity value
    USD 365.4bn

    Exit at 7.6x EBITDA

    Value per shareUSD 48.97

    77% of EV

    Terminal value, undiscounted
    USD 369.9bn
    Terminal value, discounted
    USD 285.6bn
    Enterprise value
    USD 369.8bn
    Less net debt
    USD 162.6bn
    Equity value
    USD 207.2bn

    Spread between methods: 55%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    3.91%165.96200.23258.57380.55797.80
    4.91%106.21118.92136.78163.84209.88
    5.91%73.5679.1886.3695.92109.34
    6.91%53.0055.6258.7862.6967.68
    7.91%38.8540.0441.3942.9744.86

    Outlined: this model. Green text: above today's price of 48.09. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year0.3%-9.2%-9.5pp
    EBIT margin21.5%14.7%-6.9pp
    Discount rate5.9%7.5%+1.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.